The Shanghai Composite Index rose 3.2 percent to 2,072.99
at the close, adding to yesterday’s 2.2 percent gain. The two-day rally is the biggest since January 2012. The CSI 300 added
4.6 percent to 2,326.69. The Hang Seng China Enterprises Index
gained 3.6 percent after Federal Reserve Chairman Ben S.
Bernanke said the U.S. will continue to need stimulus. Premier
Li Keqiang said in a speech this week that the nation’s economic
growth and employment must stay above a certain floor, according
to Nomura Holdings Inc.

“There’s some speculation that there will be some small-scale stimulus plan from the government to prevent economic
growth from slumping too much,” said Dai Ming, a money manager
who helps oversee $19 million at Hengsheng Hongding Asset
Management Co. “The speculation may push up stocks like
cyclical companies.”

Premier Li signaled in a July 9 speech that the
government’s policy stance may soften in the second half of the
year, Zhang Zhiwei, an economist at Nomura, wrote in a note
today.

Li’s Comments

Li is feeling more pressure as economic data continue to
weaken and risks to the 7.5 percent growth target increase,
Zhang wrote. The statistics bureau is scheduled to release data
on second-quarter economic growth on July 15. Growth may have
slowed to 7.5 percent from 7.7 percent in the first three
months, according to the median estimate of 34 economists in a
Bloomberg survey.

As long as the “economic growth rate, employment and other
indicators don’t slip below our lower limit and inflation
doesn’t exceed our upper limit,” China will “focus on
adjusting the structure, promoting reform and pushing forward
economic transformation and upgrading,” Li said in Guangxi, the
official Xinhua News Agency reported. He didn’t elaborate on the
limits.

Li may announce “targeted” policy support measures in
coming months, boosting investment in urban infrastructure,
affordable housing and public services to bolster domestic
consumption, Jian Chang, an economist at Barclays Plc, wrote in
a note to clients.

Developers’ Financing

The Shanghai measure has fallen 8.6 percent this year as
data from industrial production to exports pointed to a slowdown
in the economy and as money-market rates reached record highs
last month. The index trades at 8.5 times 12-month projected
profit after valuations fell in June to the lowest level in at
least five years, data compiled by Bloomberg show.

Trading volumes in the Shanghai index were 70 percent
higher than the 30-day average. The measure’s 30-day volatility
was at 26.1 today, the highest since December 2010, according to
data compiled by Bloomberg.

A gauge of property developers in the Shanghai Composite
gained 4.6 percent, the most among five industry groups. China
Vanke Co., the biggest developer, surged 4.9 percent to 10.78
yuan. China Merchants Property Development Co., the third
largest, rose 4.7 percent to 28.05 yuan. Poly Real Estate
advanced 6.1 percent to 11.32 yuan after the developer said net
income increased 35 percent in the first half.

Recent statements from the China Securities Regulatory
Commission signal financing policies for property companies may
be relaxed in the future, the China Securities Journal reported
today on its front page, citing an unidentified person.

Goldman Outlook

A CSRC spokesman said on June 28 China won’t approve
initial public offerings, financing and restructuring of main
assets for property developers which violated laws and
regulations, according to the newspaper.

Liquidity in China is expected to tighten in the second
half as the nation’s leaders have a higher tolerance for lower
economic growth, according to Goldman Sachs Group Inc.

“Against this backdrop, listed companies and firms facing
a potential shortfall or strain on working capital may be less
well positioned than those with stronger balance sheets,”
Goldman Sachs analysts including Ben Bei wrote in a report.

The bank cut Chinese material stocks to neutral and auto
and metal companies to underweight, saying they are more
“vulnerable” due to higher leverage and lower profitability.
Telecom stocks were raised to neutral, while transport shares
were upgraded to overweight, Goldman Sachs wrote.

Gold climbed for a fourth day to the highest level in more
than two weeks after Bernanke backed sustained stimulus for the
foreseeable future. Minutes of the Fed’s June 18-19 meeting
released yesterday showed many officials wanted to see more
signs that employment is improving before backing a trim to bond
buying.

The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 percent in New
York yesterday.